Raising Capital

Raising capital is one of the most valuable skills in business. With it, you can fund a startup, scale an existing business, or make yourself an asset to any organization.

Building Value for Investors

Every step from an idea to a functioning business increases its value to investors. The more progress you make, the better. If you have capital, use it to gain as much traction as possible before seeking outside investors. Some situations may not allow this, but you can always create at least some traction.

• Idea Phase: Your idea alone is not worth much. Friends or family might invest, but it's unwise to seek serious investors at this stage.
• Business Plan & Pitch Deck: A well-developed plan can attract investors. If you have collateral, you may qualify for up to $5 million in SBA loans (though interest rates are currently around 11%).
• Prototype (MVP - Minimum Viable Product): If you can bootstrap to a working prototype, your business becomes far more investable.

Investors want to see a business, not just an idea. Take the story of Steve Madden shoes: Jordan Belfort got 85% of his company for just $1 million because Madden had no plan and didn’t negotiate. Belfort immediately flipped 50% for $1 million, effectively owning 35% for free.

Investor Expectations

When approaching investors, consider:

• Team: A strong team adds credibility. If you're solo, expect investors to require life insurance along with liability insurance.
• Market Potential: Does it have potential for a billion-dollar market cap? Venture capitalists (VCs) may be interested. A potential $30M-$400M potential? Angel investors or crowdfunding might be a better route.
• Funding Rounds: Can you reach viability with your own cash? With a single investor round? Or will you need multiple rounds?

Understanding Valuation

Your company value changes based on funding and milestones:

• Idea Stage: Likely worth around $100K.
• Business Plan Stage: Worth significantly more, say $500k; this goes up with a website, MVP, team, revenue, beta testing etc.
• VC SAFE Agreements: Investors may use SAFE notes to structure deals (e.g., a $4M valuation with a $5M cap and 20% discount).

How to Connect with Investors

Cold emailing VCs rarely works. The best way to connect is through a warm introduction from someone they respect.

People who can introduce you to investors include:

Equitynet is a great place to connect with investors, you can create a list of investors that invest in pre-revenue companies that you haven't messaged yet, even narrowing it down to those that stated a keyword; it does cost $299/mo but if they respond it's worth it. Angellist is well known, but doesn't really allow companies to reach out to investors. Some people who can offer warm introductions to venture capitalists and angel investors below:

• Entrepreneurs they have funded or respect
• Corporate lawyers they work with
• Business school professors (Stanford, Harvard, Wharton, their alma mater specifically etc.)
• Other angel investors

Networking opportunities:

• Local startup communities
• Startup groups on social media
• Accelerators and pitch events
• In-person industry conferences

Be authentic if people sense you only want their connections, they will avoid you.

Raising Capital: What to Expect

• Friends & Family: $10K for 10% equity, sometimes more; but if proof of concept can be created this cheap you're better off bootstraping rather than give away equity at this cheap a rate.
• Angels & VCs: Up to $1M for 25% equity
• Tech Startups: Sometimes there will be many rounds of funding, pre-seed, seed, series a, series ( up to f or 6 rounds after seed rounds are not uncommon) and a key VC will raise the valuation each time and then when they no longer want to keep doing raises, they get their friends in on the action until it's ready for an IPO; their exit strategy.

Crowdfunding Options

StartEngine is the best crowdfunding platform, handling most of the process for a fee. WeFunder is a solid alternative but requires you to do your own marketing.

To succeed on WeFunder, you'll need:

• A marketing budget of $3K+/month for ads
• A viral content strategy
• Compliance with crowdfunding regulations

StartEngine provides regulatory guidance, while WeFunder may have resources you need to check for yourself.

Final Thoughts: Raising capital is about building value, networking, and presenting a compelling opportunity. The better prepared you are, the more leverage you have in negotiations.